Previous work in our laboratory established that HMG CoA reductase, the limiting control step in cholesterol synthesis in liver, was subject to interconversion between an active and an inactive catalytic state. ATP (Mg ions) in the presence of a protein fraction from the liver cytosol severely inhibited the reductase. The inactivated state of the reductase was sufficiently stable to permit its separation. Subsequent incubation of the modified reductase with a second cytosolic fraction restored activity. The primary thrust of the present research is to purify and characterize the components of this in vitro system. We intend to prove that: (a) a phosphoprotein phosphatase catalyzes the reactivation of ATP-treated microsomal reductase. (b) the inactivating enzyme is a protein kinase (reductase kinase) that is itself inactivated by a phosphoprotein phosphatase and reactivated by a second protein kinase (reductase kinase kinase). (c) the complete bicyclic system can be reconstructed with solubilized enzymes. Maintenance cultures of mature liver hepatocytes are presently employed in our laboratory to characterize responses to insulin and glucagon under physiological conditions. Insulin stimulates the synthesis of nonsaponifiable lipids (principally cholesterol) in these isolated hepatocytes, and glucagon blocks insulin action. With these observations at hand we wish to test the hypothesis that insulin and glucagon control HMG CoA reductase activity in vivo by means of the interconvertible system characterized in vitro.